A government-appointed panel on Monday suggested nearly 100 amendments to the new Companies Act to make it easier to do business in India, including for simpler laws for incorporating a company and for raising funds, as also for insider trading and dealings with top executives.
The ministry of corporate affairs has decided to launch a public consultation process on the suggested changes and has invited comments from all concerned stakeholders until 15 February in this regard.
The ministry had constituted the Companies Law Committee in June 2015 for examining and making recommendations on the issues arising out of implementation of the Companies Act, 2013.
The Committee, chaired by Corporate Affairs Secretary, submitted its report today. The panel also had nominees from RBI, Sebi, industry bodies, as also from Institute of Cost Accountants of India, Institute of Chartered Accountants of India and Institute of Company Secretaries of India.
The committee held extensive consultations with stakeholders before making its recommendations and received more than 2000 suggestions during the process.
The stakeholders consulted included all industry chambers, professional institutes, law firms, financial sector entities and other regulators.
The panel said that its endeavour has been to address difficulties and challenges expressed by various stakeholders and also to further the government's objective of improving ease of doing business, encouraging start-ups and the need for harmonising various laws.
The suggestions also include measures to bring in greater clarity in the Act and Rules and harmonising the various provisions thereof while making its recommendations.
The panel has proposed changes in 78 sections of the Companies Act, 2013, which along with consequential changes, would result in about 100 amendments to the Act.
Approximately 50 amendments to the Rules have also been proposed. The recommendations cover significant areas of the Act, including definitions, raising of capital, accounts and audit, corporate governance, managerial remuneration, companies incorporated outside India and offences/penalties.
Changes have been suggested for easier regulations for shareholders' approval to the managerial remuneration. It has also been suggested to change definition of associate company and subsidiary company to ensure that 'equity share capital' is the basis for deciding holding-subsidiary relationship rather than 'both equity and preference share capital'.
The panel further said that private placement process be substantially simplified, while doing away with separate offer letter and reducing the number of filings to Register. It also suggests making valuation details public.
Another suggestion relates to making incorporation process easier and allowing greater flexibility to companies.
"An unrestricted objects clause (needs) to be allowed in the Memorandum of Association dispensing with detailed listing of objects," the panel suggested while suggesting self-declarations to replace affidavits from subscribers to memorandum and first directors. It also wants changes in various forms.
The panel has also recommended that provisions relating to forward dealing and insider trading be omitted from the Companies Act as listed companies are covered under Sebi regulations.
It also wants companies being allowed to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement.
The restriction on layers of subsidiaries and investment companies has also been sought to be removed, while change in the definition of term 'relative' has been suggested for determining disqualification of auditor.
The committee also wants rationalising penal provisions with reduced liability for procedural and technical defaults, while penal provisions for small companies has been sought to be reduced.
It wants no filing fees if financial statements and annual returns filed within prescribed time. Also, it has been suggested that auditors can report on internal financial controls with regard to financial statements.
Frauds less than Rs 10 lakh has been sought to be made compoundable offences, while bigger frauds can continue to be non-compoundable.
The panel has suggested reducing requirement for maintaining deposit repayment reserve account from 15 per cent each for last two years to 20 per cent during maturing year.
The foreign companies having insignificant/incidental transactions through electronic mode should be exempted from registering and compliance regime under Companies Act, 2013, the panel further said.
It also wants disclosures in the Directors' Report to be simplified, while duplications with Sebi's disclosure requirements and financial statements can be removed while retaining the informative content for shareholders.
It has also recommended increased threshold for unlisted companies for compliance in context of requirement for Independent Directors, Audit Committee and Nomination and Remuneration Committee.
A test of materiality can be introduced for pecuniary interest for testing independence of Independent Directors, while thresholds for relatives' pecuniary interest can be revised to make it more practical, it said.
Another suggestion involves doing away with the requirement for a managerial person to be resident in India for 12 months prior to appointment.
The panel also wants disclosures in the prospectus
required under the Companies Act and Sebi Regulations to be aligned, with a view to make these simpler, by allowing prescriptions to be as per Sebi Regulations.
It has also suggested allowing ESOPs to promoters working as employees/directors.
The sweat equity limit has been proposed to be hiked from 25 per cent of paid up capital to 50 per cent for startups.
Proposing a new section, the panel wants recognition of the concept of beneficial owner of a company and also a new clause for the need for a register of beneficial owners to be maintained by a company and and filed with the Registrar.
The panel also wants the provisions with regard to consolidation of accounts to be reviewed and those with respect to attachment of standalone accounts of foreign subsidiaries to be relaxed in certain cases.
It has also recommended re-opening of accounts to be limited to 8 years, and removing the requirement for annual ratification of appointment/continuance of auditor.
The mandatory requirement of taking up some items only through postal ballot should be relaxed in case of a company that is required to provide electronic voting at its General Meetings.
(REOPENS DCM 123)
Sai Venkateshwaran, Partner (Advisory and India Head) at KPMG, in India said the committee's recommendations are clearly a step in the right direction and aimed at improving ease of doing business.
The suggested changes seek to remove practical difficulties in complying with the law in its current form without diluting the intent, he added.
"The speed with which many of these recommendations can be implemented is key, as it goes beyond just the executive powers of the government and will require legislative due process to be followed, including a possible reference to a Parliamentary Standing Committee," he said in a statement.